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Tuesday, November 2, 2010

The fabric of our lives, cotton, is breaking price records due to global supply constraints (Pakistan/India), emerging market demand, the reflation bid (flight to real assets) and a lower Dollar. The question is, when do these costs pass through to the consumer, or cotton hedges expire and profit margins get squeezed. I compared BAL to JJC (copper etn), QQQQ (Nasdaq 100 etf ), DIA (dow etf) and GLD (gold ETF). I read that the price of cotton is at a 140 year high (1870). At some point there will be a quick 38.2% Fibonacci retracement in $BAL and cotton futures. Boo ya.

AUD/USD is testing the October highs after a 25 basis points rate hike by the Reserve Bank of Australia to 4.75 percent. A few moments ago it pierced through the Oct high (1.00024) but sold off. QE2 + U.S-Australia yield differentials widening is bullish for AUD/USD, which explains the 0.22% spike to 0.99970 (in my opinion). You can also see that AUD/USD is trying to break through an ascending triangle.

However, going forward, if gold comes under pressure again and/or the US Dollar is bought on QE2, AUD/USD could retrace back to that uptrend line. It needs to stay above 1.0. Watch commodity currency reactions and volatility during the election and QE2. Below is the RBA statement released to the media at rba.gov.au and AUD/USD charts.

Yale Professor and co-creator of the S&P Case Shiller Home Price Index was on Tech Ticker (w/ Aaron Taks) outside the Buttonwood Conference. He said if home prices go down another 5% that would put stress on financial institutions going forward. Shiller also mentioned the liquidity trap, or the lack of confidence to borrow money even at extremely low interest rates. Watch the vid after the jump.

I'm watching bonds and credit spreads during QE2 week. LQD, the investment grade corporate bond ETF, just pierced through a rising wedge and is trading right under the 50DMA. It is not volatile. Elliott Wave's Bob Prechter just released a report on bonds titled "The Next Major Disaster Developing for Bond Holders" (link). Take from it what you will. With the Fed propping up Treasuries to lower rates, it is kind of hard to figure out how to price "risk" at the moment as the "risk-free" rate (Treasuries) is being manipulated. We'll see if traders drift away from Treasuries and use another credit instrument to price risk at some point. Also, why are 33,659 LQD $100 March 2011 Puts open? I don't see much interest anywhere else. I see they were bought in September (see thoughts by OptionMonster on the trade). This trade is the option to sell 3,365,900 shares at $100 if LQD is in the money (below $100 + premium). Interesting hedge. See charts > >

After the SEC collected $150 million from the Goldman "Abacus" CDO (collateralized debt obligation) investigation, they are now looking at the JP Morgan/Magnetar "Squared" CDO (of CDOs). Read the article at ProPublica.

The S&P is testing the 50 month moving average again. It failed at that level in April. The 50MMA is currently at 1204.25 according to freestockcharts.com (see below). Also look at the long term ascending triangle. SPX is currently in a multi-year cHoPpy ascent towards the 2000/2007 peak. It made a high of 1,195 today (pre-QE2 and elections) and quickly reversed to $1,179 just now. It probably makes sense to insure longs here, the chart looks overextended (imo)! But a crazy QE injection could destroy that idea.

Marc Faber, author of the Gloom Boom and Doom Report, was on Bloomberg on 10/26/2010. He said if QE2 (quantitative easing 2) is less than $1 trillion it could correct asset markets (stocks, commodities and precious metals) and rally the US Dollar (USDX, USD/JPY). However, Faber doesn't believe the bull market in stocks and commodities is over. In the long run he likes stocks over U.S. Government Bonds and cash (courtesy of Fed quantitative easing or the "economic put").

In the second segment Faber was gloomy on the Chinese economy. He said economic imbalances, capital flows, artificially low interest rates (credit growth), the property price boom and rising inflation (example corn/cotton) will slow down the economy. Marc Faber joined short seller Jim Chanos. If Chanos is right and the Chinese credit bubble pops, will the People's Bank of China (PBOC) just print money, backstop losses and buy assets to avert a crisis?

Marc Faber on Bloomberg TV with Margaret Brennan on 10/26/2010 after the jump.

Sunday, October 31, 2010

Peter Schiff of Euro Pacific Capital, who correctly said "home equity and phony wealth" would evaporate multiple times on CNBC before the mortgage fraud super bubble popped, gave a few market updates on Friday (Europac.net blog post, Schiff Report) and on Tech Ticker on 10/18. First his post.

Keep Your Head Above Dollar

By: Peter SchiffFriday, October 29, 2010

There has been so much discussion recently about "QE 2" that you would think the entire financial sector were about to embark on a transatlantic cruise. Unfortunately, they, and we, are not so lucky. In the year 2010, "QE 2" doesn’t refer to a sumptuous ocean liner, but a second, more extravagant round of "quantitative easing" – stimulus. In the past, this technique was simply called "printing money." As if the nation has not already suffered enough from the first round, Captain Ben Bernanke and the Fed are determined to compound the damage by hitting us with another monetary juggernaut. Their stated goal is to boost the economy and create jobs. However, since economic growth cannot be achieved by printing money, their QE 2 will sink just as surely as the Titanic.

The Nikkei 225 (Dec future) is under pressure tonight. It is down 1.71% at 9,195 and broke through the 50 day moving average. It is testing July support and if 9,200 officially gets taken out it could bleed to the 8/31 low (8,775). 9,200 support is critical for a potential head and shoulders reversal. Japanese stocks really need a strong jolt here to pull it off IMO. NK is still trading in a descending channel. Over the past six months (since April) the Yen is up 15%+ and the Nikkei is down 15%+. So there's a clear inverse relationship. Japan needs a lower Yen. Charts and articles after the jump.

John Taylor who runs the biggest currency hedge fund in the world (FX Concepts) thinks QE2 is priced in and believes the US Dollar will remain weak through the end of November [EUR/USD tops out between 1.40-1.43]. Taylor still believes EUR/USD hits 1.0 (par). He was on BloombergTV talking with Erik Shatzker watch below. Oh and beware of currency wars fueled by protectionism. You hear that Central Bankers?

Bill Gross who runs the biggest bond fund in the world at PIMCO said quantitative easing and even our public debt has ponzi-like characteristics. Wow.

The Fed’s announcement of a renewed commitment to Quantitative Easing has been well telegraphed and the market’s reaction is likely to be subdued.

We are, as even some Fed Governors now publically admit, in a “liquidity trap,” where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan. Ben Bernanke, however, will try – it is, to be honest, all he can do.

The Fed’s announcement will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.

Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a Ponzi-like characteristic.

GMO's co-founder and chief equity strategist Jeremy Grantham released his 3Q 2010 letter titled "Night of the Living Fed". Check out the cover page to your left (click for full view). GMO runs $94 billion in client assets. After listing the "ruinous costs" of Fed asset price manipulation, Grantham questioned bonds versus equities since both are overpriced and bonds are manipulated. Read the full report here in PDF form.

"5) Should we buy overpriced stocks when bonds are even worse?

We plan to write more substantively on this topic in the near future, but for now the short answer is that bond prices are currently manipulated, and are yielding less than any market clearing price would suggest. They absolutely do not reflect the substantial fears in many quarters about inflation in the long term. Even in less manipulated times, bond prices can be quite silly for the usual behavioral reasons, as demonstrated most clearly by the 15% yield on the 30-year Treasury in 1982! Bonds are thus emphatically not a reasonable yardstick for measuring value in stocks. We use the long-term returns for stocks to decide what their fair value is. They are currently overpriced. Bonds are even less attractive. Yet, remember that in a strongly mean-reverting world, you need to be careful about enthusiastically buying the less ugly of two overpriced investments.Cash has an option value: on the chance that stocks or bonds or, better yet, both, decline, the investor will need resources from which to buy." [full report]

The US Dollar Bullish ETF ($UUP) and its March 2011 call options saw big volume yesterday. UUP closed up 0.13 or 0.57% at 22.65 on 15.43 million shares (average of 3.76M) and a total of 227.57K options traded (average of 21.49K). UUP hasn't seen this much volume since May. UUP is testing the 2008 and 2010 lows which could explain the upside positioning, whether speculative or hedging.

Check out the two block trades: 99,000 UUP March 24 Calls traded at 0.34 (6,586 open interest) and 54,000 UUP March 23 Calls traded at 0.61 (48,617 open interest). The big volume was on the PHLX. It was a vertical call ratio spread according to OptionMonster. UUP was also on my ISE widget with 4,823 calls opened versus 253 puts opened.

Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

Professor William Black is probably the right guy to explain the current foreclosure crisis. He was a former bank regulator and S&L investigator during the Savings and Loan crisis in the late eighties. He said today's crisis is the S&L/junk bond bust x 40. Below is a statistic he gave on mortgage fraud.

"Credit Suisse says that by 2006, 49% of all mortgage originations in the United States were liars loans. The lowest incidents of fraud is 50% and that’s when the fraud fraudsters study it themselves. When independent folks study it, it’s in the 80 to 90% range."

If you've been following the public finance crisis on my blog during the past 2 years, nothing has really changed. State governments and local municipalities are being squeezed by lower tax revenues (offset by tax hikes) due to the great recession, debt-deflationary drag, foreclosures, lower property values, unemployment and slower economic activity. Read: Lower Property Values Hit City Revenues (WSJ).

Analyst Meredith Whitney sees darkness ahead for the States: Whitney Says States May Need Federal Bailout in Next 12 Months (Bloomberg video). State credit default swaps, or insurance on State debt (see Illinois, California)have premiums almost as high as Greece, Portugal and Ireland who are going through a similar situation. Chris Mier of Loop Capital disagreed with Meredith Whitney. On Bloomberg TV he said States "have their own resources, are sovereign and have deep powers to tax". Focus on local units of Government since "they have less resources, they have smaller economies and have limited abilities to tax". See the Bloomberg video here. Either way, get ready for a spike in taxes or a Federal bailout.

Monday, October 25, 2010

Gary Shilling of A. Gary Shilling & Co. was on CNBC on 10/22/2010. He sees home prices falling by another 20% and mortgages under water rising to 40% from 23%. Maybe that is why bank indexes are underperforming the Nasdaq and commodities (+ the mortgage put-back crisis). He also sees the 30-Year Treasury yield hitting 3%. Before Shilling came on, CNBC reported that the Clear Capital Home Data Index was rolling over. He says watch the standoff between Treasuries and stocks. One will give. Watch the S&P ETF (SPY) chart stream live here.

Someone or a currency bot decided to pierce through October support in the December US Dollar Index Future (DXZ10) and print a low of 74.60. More on that print here, here and here. Short covering bots quickly rallied the almighty Dollar back to unchanged territory. It is now rolling over post G20 meeting (Dollar sell-off resumes after G20, eyes on Fed). Was that a flash crash or legit capitulation? Why are we seeing this happen inSPY and the Dollar Future during after hours? Watch 76.33 support which was the actual low on 10/15/2010. The Yen is making new highs as well. Watch that rising trend line. Charts after the jump. This week will be interesting.

60-Minutes did a special on the unemployment problem in the U.S and specifically in California. We are currently in a debt-deflationary depression (see this MacroTwits video with Gregor Macdonald from 8/16/2010, he explained it). The trillion+ in Government stimulus (quantitative easing) was supposed to cure this problem. Instead the money backstopped banks, inflated stocks and commodities, deflated the US Dollar and attempted to put a floor under housing prices by buying Treasuries/agency mortgage-backed Securities to lower mortgage rates. As you can see from the Clear Capital Home Data Index reported last week, we might be experiencing a double-dip in housing.

The Fed's second stimulus (quantitative easing #2) could be announced at the November 3rd meeting which would focus on buying longer-term Treasuries to lower rates even further. Short term rates are at 0%. The Government hopes it will fuel refinancing activity and lower borrowing costs for businesses and households to provide an economic jolt. Hopefully commodity inflation doesn't mess that up.

Sunday, October 24, 2010

Harvard's Niall Ferguson was at the The Daily Beast's Innovators Summit in New Orleans on 10/22/2010. Watch the full video at Zero Hedge. This was an interesting quote:

"We've had an enormous of stimulus in the US, it's the biggest fiscal stimulus in the world, and huge unprecedented monetary stimulus. What's been stimulated? Not jobs in Michigan. What's been stimulated has been commodity markets and emerging markets. Because the liquidity just leaks out, and that's why another round of stimulus would not stimulate in the promised way." [link]

*Michigan's unemployment rate is at 13% and the cotton future tripled since early 2009.

Saturday, October 23, 2010

Ashraf Laidi, Chief Market Strategist at CMC Markets, was on BNN giving his thoughts on USD/JPY (Dollar/Yen), EUR/USD, the G-20 meeting and Central Bank currency interventions. The Yen is very strong at the moment and Ashraf said the Bank of Japan might try to squeeze USD/JPY shorts after the G20 meeting. See Ashraf's interview here (bnn.ca). If you remember, a few weeks ago the BoJ tried to defend USD/JPY support but failed. Currency trading is all about gaming Central Bank moves. I wonder how much insider trading goes on. Also check out the USD Future flash crash today courtesy of @NicTrades. She said some trades were cancelled.

Carter Worth, Chief Market Technician of Oppenheimer & Co., was also on BNN and said the S&P 500 ends the year where it started, REITs move higher (based on lower interest rates) and Gold and Apple consolidate after powerful advance. See Carter's interview here (bnn.ca).

Friday, October 22, 2010

It seems like H&R Block (HRB) is the only stock with volatility spiking at the moment. There are two things going on. Since an ex-entity of theirs, Option One Mortgage, originated mortgages at the peak of the bubble, they could be exposed to $33 billion in mortgage put-backs. The CEO said they have $188 billion in reserves though. Read more at CNBC NetNet.

However, this is probably more serious. H&R Block was told by HSBC that they couldn't sell "refund anticipation loans" anymore due to new IRS rules. This is a major part of their business.

"HSBC told Block it could not provide funding for the RALs and refund anticipation checks because the IRS has decided to stop providing a debt indicator next tax season that would say whether a taxpayer has liens outstanding, and that would make the loans too risky to provide." [WebCPA.com]

According to Bloomberg and WebCPA, 3 to 4 million of their clients used RALs last year or 17% of total tax returns. Moody's recently downgraded H&R Block to Baa2 and S&P put them on Credit Watch (BusinessWeek).

So check out the activity in its credit default swaps, options and stock. Business Insider and Bloomberg both reported that H&R's credit default swaps (Block Financial LLC) were spiking. I couldn't find a chart on Bloomberg.com but here are CDS quotes as of 10/21/2010:

Thursday, October 21, 2010

Here are useful indicators to watch during the financial mortgage put-back conflict or any upcoming sovereign debt (or bank) black swan events. I also linked to other interesting indicators at Bloomberg.com. For a list of sovereign and corporate (including U.S. and European bank) CDS (credit default swap) quotes, go here.

It’s old news that the U.S. dollar is weak. In fact, the U.S. dollar is so weak that it has been on a one way path of devaluation since early June. If we know anything from the last two years of economic unrest in the global financial markets, one thing we do know is that U.S. dollar direction tends to be sharp and long. A quick look at the U.S. Dollar Index is quite revealing.

In the chart pictured above, you can see quite clearly that the U.S. dollar has moved, for the most part, in very strong trending moves for months and years at a time over the last 4 years. Although there have been small retracements in each impulsive move, you can see that traders who focus on trend following techniques in the U.S. Dollar Index have been offered plenty of trade opportunities over the last few years. Let’s break down a quick recap of U.S. dollar direction over the last 4 years.

"My impression is that much or all of the potential upside of quantitative easing is already fully reflected in stock, bond and commodities markets. Investors now rely not only on QE itself, but also on its success. This is a dangerous place to be." [read his full report at HussmanFunds.com (The Recklessness of Quantitative Easing)

I drew lines on $QQQQ, $BAL (Cotton ETN), $GLD and $JJC (Copper ETN) earlier today. $JJC and $QQQQ are just above the April highs (pre-flash crash) and are leading the market. Watch that thin shelf and steep uptrend for any violations. The Cotton ETF is up 62% in 3 months in a rising wedge and GLD is testing its ascending channel. I'm watching for near-term structural reversals. I saw there was a breakdown in $TLT (the first chart). It broke below that ascending channel but caught support at 100. It's also below the 50DMA. I'll be watching $100 support closely. If TLT breaks down and Treasury yields breakout, Marc Faber said that could support the US Dollar. I could see that happening, but there are still overhead resistance levels for UUP to conquer (see previous post on $USD and $UUP).

So how does Gold play out? Adam Hewison who runs MarketClub thinks it is going lower (see video below). Something interesting is about to happen in the market. I'm not sure what it is. If I was crazy long the reflation trade (commodities, equities etc.) I'd probably have some downside insurance in place after these huge runs.Plus Doug Kass thinks we are forming a top. I'd like to know what Robert Prechter thinks at this juncture. Thoughts? Check out all the charts below and the gold vid.

Wednesday, October 20, 2010

A pension reform bill in France led by Sarkozy, which, if passed, will raise the retirement age by 2 years to 62, is sparking riots and strikes across the Country. Oil refinery strikes are disrupting fuel supplies and hitting public transportation. See videos after the jump.

"In light of what I expect to be a disappointing economic impact from QE 2 -- I call it quantitative wheezing -- and the negative consequences of that strategy ("screwflation") on the majority of Americans, I now believe that equities are in the process of putting in the highs for the year." [read more]

Great interviews here. Facebook Founder/CEO, Mark Zuckerberg, spoke at the Y-Combinator Startup School on 10/16/2010. It was interesting to hear his thoughts on the Facebook movie (The Social Network). He talked about his days between Harvard and Silicon Valley and how he didn't build Facebook just to get girls or join a club. He also addressed how Facebook could work with China and other countries that are sensitive to speech. He said someone in Pakistan is trying to get him sentenced to death. Zuckerberg is worth $6.9 Billion on the Forbes List (more than Steve Jobs). I embedded Zuckerberg's 2009/2010 Startup School interviews with Jessica Livingston below via Justin.tv. He mentioned Eduardo, Peter Thiel and Shawn Parker in the 2009 interview. I also embedded a 2005 interview with Zuckerberg at Facebook's HQ in Palo Alto (includes keg stand footage haha). At that time he was mainly focused on expanding the "college directory product" to other schools. I remember the buzz about Facebook in 2004 when Friendster was big. Great success story.

Chris Whalen of Institutional Risk Analytics explains the whole foreclosure crisis in 7 minutes on Bloomberg TV. He thinks the foreclosure crisis is a cancer, or a "slow wasting" deflationary process that is undermining our communities. Here are a few quotes from the video which is after the jump. What I took from the video is, not only did Wall Street / Credit Rating Agencies misprice the trillions in mortgage-backed securities, investors weren't even secured by the underlying collateral! The securitization process needs to be restructured (imho).

"We are turning our banks into REITs; we're turning them into operators of real estate and I think Washington has to take a page out of the depression..."

"The other thing we have to really think about big picture is property taxes. Every time there's a foreclosure somebody stops paying their property taxes" (muni crisis)

"When you have foreclosures, what's the next thing that's going to happen? Not a Federal moratorium; not a voluntary moratorium by lenders who can't deal with their backlogs anyway; we're going to have State moratoria the way we did in the 1930s and the Governors of those states are going to say "folks stay in your homes, keep paying your property taxes, default on your mortgage", that's Washington's problem"

"A lot of mortgage backed securities (MBS) have a case where the trustee may or may not have a note. Lets assume he's actually got a completed note in his files. He still may not be able to foreclosure because he may not have clear title to the underlying collateral... There's an awful lot of investors out there who don't know what they own. They may have unsecured debt instead of a fully collateralized piece of paper. The litigation's going to go on for years, you have trustees, custodians..."

"Most securities issued in the U.S. are governed by New York law.. Under New York State law there are certain things that have to happen when you set up a trust to issue securities.. The dealer has to deliver to the trustee the notes that evidence the obligation.. So if the trustee doesn't have those notes and if the name of the trustee is not actually inserted in the document in some cases, the contract isn't live. A lot of investors may hold securities that are in fact uncollateralized, in other words the trustee may not have the capacity to go out and foreclose on a home to make those bonds money good."

The Nasdaq 100 Index is currently leading the stock market (Apple is 19.97% of $QQQQ ETF). Apple reported record revenues and earnings today but traders sold the news as iPad sales fell short (read 1, 2 at SF Gate). The Nasdaq 100 future is currently down 1.1%. The support level to watch is 2,049 in $NDX, NDZ (Nasdaq 100 December Future) and NDQ (e-mini). There is a steep uptrend line that must hold as well. XLK has a similar level as well (chart 4). I'm watching the US Dollar, QQQQ, XLF (banks), ITB (construction) and commodities for overall confirmation. I want to see if shorts can put a dent in the chart.

Monday, October 18, 2010

What the hell happened here in $SPY (S&P 500 ETF)? Was this an after hours flash crash? Well, either way, the trades were cancelled. $766 million (7.2 million shares x $106.46) moved in eight seconds according to Bloomberg. That's a decent amount of money to transact for no reason. What would trigger this? I actually saw the number first on my live quote widget and had no idea what was going on. Apple and IBM reported earnings after the bell today and SPY is trading right at the 200 week moving average (DIA just broke that level). From Bloomberg:

"NYSE Euronext cancelled all trades in the $74.8 billion SPDR S&P 500 ETF Trust that occurred at almost 10 percent below the security’s opening price, according to an email sent by the exchange.

The trades occurred on the NYSE’s Arca platform at 4:15 p.m. New York time today and priced the exchange-traded fund that tracks the Standard & Poor’s 500 Index at $106.46 compared with its opening price of $117.74. The ETF plunged 9.6 percent over eight seconds as 7.2 million shares traded on NYSE Arca, according to data compiled by Bloomberg. The S&P 500 rose 0.7 percent to close at 1,184.71 today."

Doesn't this look similar to the flash crash in April? Below are after hours charts showing the 106.46 print (courtesy of FreeStockCharts.com). To see the actual time/sales of each trade go to Zero Hedge.

Boston Fed President Eric Rosengren and Chicago Fed President Charles Evans spoke at the "Monetary Policy in a Low Inflation Environment" economic conference at the Boston Federal Reserve. They want to bring down longer term rates (Treasury yields) even further by using LSAP channels (Large Scale Asset Purchases) to avoid the Japanese deflation trap. They believe these policies will drive lending, mortgage refinancing activity and reflate the economy. Hedge fund manager David Tepper mentioned this on CNBC that the Fed would lower mortgage rates significantly to avoid deflation. Read the speech slides below. Gregor Macdonald during MacroTwits Hour mentioned these speeches (hat tip). Here is Ben Bernanke's full speech at the Boston Fed conference. Also read "NY Fed's Brian Sack on Asset Prices and Balance Sheet Policy 10/4". The Federal Reserve and Government Sponsored Enterprises (Freddie Mac, Fannie Mae and the FHA) are deeply involved in the markets right now.

Sunday, October 17, 2010

Technical Update on USD Relationships 10/17/2010: As mentioned previously on 9/28, the $USD inverse relationship trade (US Dollar/S&P-Oil-Gold) has been working during the past month and a half (chart 1). UBS's Art Cashin mentioned this relationship on King World News on Friday. So lets look at the charts. The US Dollar Index ( $USD) looks like it's due for a reversal in the short term and could possibly test that downtrend line using the two lower highs from June and September (chart 2, 3). RSI (relative strength) looks oversold and the MACD (moving average convergence-divergence) indicator could cross to the upside. The MACD is still below the mid-line though which still confirms overall downside momentum and the 50/200DMA death-cross is still in play. Watch the multiple downtrend lines. Volume increased on the rally on Friday.

Saturday, October 16, 2010

Peter Schiff on Tech Ticker (10/15/2010). He talked about the implications of a lower Dollar, inflation, 0% Fed Funds, CPI ex-food and energy, commodity prices, rising costs, inflation/unemployment, lower Dollar/exports, the trade deficit and financing the Government debt. I embedded the video after the break.

The topic of this conference--the formulation and conduct of monetary policy in a low-inflation environment--is timely indeed. From the late 1960s until a decade or so ago, bringing inflation under control was viewed as the greatest challenge facing central banks around the world. Through the application of improved policy frameworks, involving both greater transparency and increased independence from short-term political influences, as well as through continued focus and persistence, central banks have largely achieved that goal. In turn, the progress against inflation increased the stability and predictability of the economic environment and thus contributed significantly to improvements in economic performance, not least in many emerging market nations that in previous eras had suffered bouts of very high inflation. Moreover, success greatly enhanced the credibility of central banks' commitment to price stability, and that credibility further supported stability and confidence. Retaining that credibility is of utmost importance.

Friday, October 15, 2010

Gary Shilling, who runs research firm A. Gary Shilling & Co., was featured on a Bloomberg Podcast on 10/14/2010. He's still in the deflation camp and believes home prices will fall by another 20% to revert back to the long term trend. 30 Year Treasuries are still his favorite investment and have been for 29 years. He has a new book coming out next month titled: "The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation". So you know where he stands. Shilling believes gold is rising on "the rejection of paper currencies" not because of inflation. It's interesting that he doesn't care about the recent price moves in agricultural commodities (corn, cotton). Maybe food spikes will be the next "$147 oil" catalyst that brings on the next crash in risk assets.

TLT (20y+ Treasury ETF) broke through an ascending channel, a near term support level AND the 50 day moving average. $100 support from the mid-2009 high and, if that breaks, the 200DMA ($96.27 but rising) look like support. Will the two year lower high in TLT stick and confirm the 30 year bottom in yields? $100 and the 200DMA are very important levels to hold here.

According to RealtyTrac, banks repossessed a record number of 102,134 homes in September. During the third quarter, bank repossessions (bank-owned foreclosures or Real Estate Owned/REOs) hit a record of 288,345 (+7% from Q2 2010, +22% from Q3 2009), foreclosure auctions scheduled hit a record of 372,445 (+5% from Q2 2010, +4% from Q3 2009) and default notices declined to 269,647 (-1% from Q2 2010, -21% from Q3 2009). Read the press release for data on total foreclosure filings (defaults, scheduled auctions and bank repossessions), foreclosure sales and foreclosure rates by state. Below is a quote from RealtyTrac's CEO, James Saccacio, and an interview with Senior VP Rick Sharga on Tech Ticker.

“Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months,” said James J. Saccacio, chief executive officer of RealtyTrac. “We expect to see a dip in those bank repossessions — and possibly earlier stages of the foreclosure process — in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks.”

Thursday, October 14, 2010

Mark Zuckerberg spoke on the Facebook/Microsoft Bing social search partnership at Microsoft HQ. He said he wants to partner with the "underdog".

"The thing that makes Microsoft a great partner for us is that they really are the underdog here right and because of that they're in a structural position where they're incentivized to just go all out and innovate..."

Wednesday, October 13, 2010

I found this info first at Reuters today. The New York Fed is re-investing $32 billion of principal from agency debt and agency MBS into Treasuries with various maturities and TIPS (Treasury Inflation Protected Securities). Below is a snapshot of the actual schedule from Newyorkfed.org. I'm watching the Treasury ETFs for any confirmed reversals here, specifically IEF (7-10yr Treasuries) and TLT (20+). TLT pierced the ascending channel, pierced floor support at the 7/1 high and is under the 50 day moving average. TIP is making new highs. Are the bond vigilantes testing market missiles? After the jump is the Treasury Operation Schedule and 2 year TLT chart. There are two potential scenarios for Treasuries: 1) they follow JGB yields lower on continued stimulus/deflation; 2) yields breakout on recovery/inflation (see the Faber and Soros links below).

INCIDENT: The traditional Swiss finishing school taught young women etiquette and social graces, but international bank regulators are talking about something much tougher when they refer to a "Swiss finish" for global banks.
Just how tough became clear last week, 4 October, when a Swiss commission proposed that its two giant banks, UBS and Credit Suisse, be subjected to capital requirements of up to 19%, nearly three times as tough as the 7% capital-to-assets ratio recently suggested by the Basel Banking Committee as a minimum global standard.

SIGNIFICANCE: The ambitious Swiss plan, designed to solve the "too big to fail" problem, will set the standard for megabank regulation as Group of 20 heads prepare for their summit in November. It almost certainly means that other big global banks such as JP Morgan Chase and Deutsche Bank will face capital surcharges from their national regulators.

Marc Faber, who writes the Gloom Boom & Doom report, made some big calls yesterday in this Bloomberg article yesterday. In summary he said: The US Dollar Gains on higher interest rates (which "begin to rise within about three months"), buy stocks and sell bonds. His reasoning? The Fed printing money. Read the article. Also, Faber said in this SFGate/Bloomberg article that the turning point would also "mark declines in commodity prices".

However, according to this Business-Intelligence Middle East article on 10/11/2010, Faber said in his October report that there could be a stock market correction in October/November.

"Writing in the October edition of The Gloom Boom & Doom report, Faber says the Fed will start printing money again and that would create a negative sentiment driving markets down. He doesn’t however see a threat to the March 2009 lows."

So does the Bloomberg article trump this article? Maybe the fun begins in December after a correction. Tech Ticker interview?

Tuesday, October 12, 2010

"A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors in Washington, D.C., on Tuesday, September 21, 2010, at 8:00 a.m."

View it here (Federalreserve.gov - Minutes of the Federal Open Market Committee 9/21/2010). After reading it check out this blog post: A Bombshell in the FOMC Minutes at Macro and Other Market Musings.

"Essentially we have a very flammable condition and sparks could happen anywhere. I mean, just look at gold and look at the rest of the commodities. You can see silver and gold going up every day; gold at $1,350; we have this mortgage foreclosure issue that could be the next spark; there are earnings coming through strong but those are a lagging indicator; we still have European debt problems in the PIIGs, I do not think those have been solved...."

"Markets simply get tired and we've essentially retraced a Fibonacci level from the original decline. This market is acting a little bit tired; it took a long time to break through 11,000; maybe it goes a little more with some euphoria about Republicans winning back the house; however, this is short term."

"I still believe in precious metals mining companies....still like gold and silver even at these high levels.....and I sleep much better at night being generally short stocks rather than long stocks."

In a CNBC interview with Maria Bartiromo, George Soros (Soros Fund Management) warned about the risk of a second global economic slowdown in 2011. His view is that politics against further stimulus will exacerbate the problem. Soros was optimistic on Greece though. He believes corporations building liquidity from profit growth will just bid for other companies instead of hire employees. China and currency wars were also mentioned. A few days ago I posted his view on Treasuries. Video after the jump.

Monday, October 11, 2010

Steve Kroft checks out the high frequency trading business in this 60 Minutes episode. He interviews Manoj Narang of high frequency trading firm TradWorx, Joe Saluzzi of Themis Trading LLC (who is against HFT), Larry Leibowitz of the NYSE, Senator Ted Kaufman and SEC Chairman Mary Schapiro. They also stroll through the NYSE data center in Mahwah, NJ.

Check this out folks. SPY/SLV is testing the 2009 low RIGHT NOW! Will SPY/GLD follow suit? SPY/GLD is trading below the moving average death cross (50dma below 200dma) and appears to be in a descending triangle. Could we see a Prechter "Dow 2000" equivalent in the Dow:Gold ratio (1.486 from .182*8.17 using .182*11,000=2,000? Or will we actually see the ratio trade at 0.50 ($INDU 2,000/$GOLD 4,000). What do you think. Charts courtesy of StockCharts.com.

Below is a table of 2010/11 price projections from the USDA report. If you chart out agricultural commodities, commodity indexes, base metals and precious metals, you can see that some prices pierced through overhead resistance on Friday. Right now the corn future is at a 2 year high (see chart). I'm also watching to see if the US Dollar Index catches support around here (see uptrend from 2008-2009 and 2009 floor on USDX/CZ10 chart). Eventually there will be a hard asset correction imo; however, the Ag trend, especially corn, looks strong. We'll see how 2010 ends. Hopefully input costs are hedged going forward if we see price spikes. Cocoa Puffs are already expensive as it is. Here we go: "Don Mulligan, chief executive at General Mills, told investors that the food company was “about 50 per cent hedged” for the 2011 fiscal year, which began in June."FT.com 8/2010.

Brian Sack, Executive Vice President of the New York Federal Reserve, gave a speech at a CFA Institute Fixed Income Management Conference on 10/4. He made interesting remarks about asset prices and balance sheet policy. People should understand the forces at work here.

Famed reflexive hedge fund manager, George Soros, gave a speech at Columbia University on 10/5. He said Treasury yields could move even lower if the U.S. follows Japan (deflation,0% cash rate, 1% 10y Japanese Government Bond yield). He mentioned that US banks would continue to borrow at 0% and invest in Treasuries. We already have the Fed bid in place (NY Fed's Brian Sack's speech on 10/4). However, if the Chinese Government allowed the Renmimbi to appreciate against the U.S. Dollar it would change his view.

SITUATION: One indirect consequence of the Gulf of Mexico oil spill is the impact it may have on the financing of the many tourism projects that have sprouted along the Caspian Sea. Bordered clockwise from the North by Kazakhstan, Turkmenistan, Iran, Azerbaijan, and Russia, the Caspian Sea is one of the largest bodies of water and an object of strategic ambitions. Though the global financial crisis put may grandiose Caspian Sea tourism projects on hold, some of them are coming back to life, but investors should be alert to tourism trends, corruption, and unanswered questions about demand and potential profit.

ANALYSIS: The magnitude of the consequences of the Gulf of Mexico oil spill is still hard to assess, even more so as there is no consensus as to the exact quantity of oil left in the water: The government says 25% while other organizations, such as the University of Georgia, say 75%.

A large put spread was put on in the tech ETF $XLF. According to CrimsonMind 112,300 December $23 Puts were bought for $0.87 and 112,300 December $20 Puts were sold for $0.19. That's a net long put position worth $7.6 million. XLK is at technical resistance so the puts could be hedging underlying long exposure. Both Chris McKhann at OptionMonster and CrimsonMind thought they were connected with shares. WallStreetPit also had analysis. Read the articles for exact profit/loss figures. If XLK trades down to $20, the spread would make decent money.

Chris Whalen, who runs Institutional Risk Analytics, gave a presentation at the American Enterprise Institute (AEI) on 10/6. Here are the slides. He gave some harsh warnings about the banking system in 2011. You can watch the conference at Pragcap.com.

"Mounting cash flow stress on all lenders is reaching crisis levels. Non-payment by borrowers and mounting foreclosure backlogs are creating the conditions for the collapse of some of the largest U.S. banks in 2011." (Chris Whalen presentation at AEI. Slides also at Business Insider)

Thursday, October 7, 2010

Dylan Ratigan spoke with Karl Denninger, author of Market-Ticker.org, on his show about the foreclosure mess going on. If you didn't know, State Attorney Generals all across the country are accusing banks of fraudulently foreclosing on properties. I embedded the MSNBC video below and linked to various articles.

If you're interested in copper or molybdenum mining companies check out Marengo Mining (MRN.to). It is a microcap mining company based in Australia but owns the major Yandera Copper-Molybdenum-Gold project in Papua New Guinea. I wrote about Marengo last year when I read that Quantum Partners LDC (a Soros fund) scooped up 20% of the equity during a capital raise. With MRN trading at 0.16/share on the Toronto Stock Exchange, the stock is essentially a call option on the Yandera asset and expansion. As of 9/23/2010 Marengo had 738.8 million ordinary shares outstanding and 84.7 million options open to acquire shares at various prices.

On August 23, 2010, Marengo raised C$20 million at C$0.084 from various investment funds in North America. The company has no revenue except for interest on cash and has netted losses every quarter due to expenditure burns. For the quarter ended 6/30/2010, Marengo had A$59,498 in revenues, a net loss of A$(4,284,756), A$6,984,582 in cash +A$24,000,000 capital raise, A$25,769,730 in total assets and A$22,443,518 in equity. I put up snapshots of annual and quarterly trends from the Q3 release. It's pretty clear what's been going on, they burn cash and then raise after a year. But going forward, if $COPPER breaks out (IMF says 'few signs' metals supply can keep pace with demand, Copper Will Trade at $11,000 in a Year, Goldman Says), Asian economies boom, inflation hits and/or currencies debase; Yandera could be a hidden gem. The biggest risk here would be lack of capital to survive.

USD/JPY just pierced through the pre-intervention low of 82.87. It is currently trading at 82.69. Watch for major capitulation to catch an upside wave. This channel reminds me of the Euro earlier this year. The Bank of Japan wants the Yen down but they are also fighting Fed policies.

Wednesday, October 6, 2010

First off, check out the office of Eclectica Asset Management in this BBC interview with CIO/CEO Hugh Hendry (hat tip Paul Kedrosky's blog). In the comment section someone said this video was a year old. If you didn't know, Hendry is currently short $2 billion worth of 10 year Japanese industrial debt with a 1% yield using credit default swaps. That's cheap! Listen to this KingWorldNews interview for more. Carney's NetNet Blog at CNBC.com noted today (via FT) that he's betting against China by shorting Japanese corporate debt.

"Mr Hendry has purchased cheap credit protection on companies such as Nippon Steel or JFE Holdings for as little as 50 basis points annually, expecting that spreads will blow out following an export-led slowdown."

Was this trade the next "John Paulson trade" he was talking about at that Russian Forum earlier this year?

"At a Shiller P/E of 21 and a historical peak-to-peak S&P 500 earnings growth rate of 6%, a simple reversion to the historical (non-bubble) Shiller norm of 14 would require seven years of earnings growth and yet zero growth in prices. Stocks are not cheap here."

He also talked about the ISM and Fed Indices, ECRI Weekly Leading Index, dividend payout ratio vs. operating earnings growth, and how he views "current market conditions as something of a Ponzi game"! The most interesting part was on his hedges. Read the full comment here.

Tuesday, October 5, 2010

As oil sees its image tarnished from the disastrous oil spills that took place off the coast of the Gulf of Mexico and off the coast of Dalian, China, and as the most promising oil fields remain off limit to the Western oil majors, gas is gaining in popularity.

Gas is present in large quantities and in many countries of less questionable reputation such as in the United States and is also less harmful to the environment than oil. Though gas is not intended to replace oil, some gas-rich countries such as Russia and Iran are strongly advocating for a gas cartel to regulate the industry, which can explain the reluctance of Russia to adopt sanctions towards Iran at the United Nations as both countries heavily rely on the income generated by their natural resources.

Jim Rogers (Rogers Holdings) was back on CNBC yesterday giving market calls. Below is a summary of what he said plus the video after the jump. He thinks you should dump your Mercedes and put gold rims on a tractor while farming agriculture (not necessarily in those words). Look at previous posts featuring Jim Rogers. He's been right the majority of the time and has timed trades publicly very well.

Sheila Bair, Chairwoman of the FDIC, was on CNBC today talking about bonds. She believes bonds are in a bubble in the long term. See my recent post on LQD, the investment grade bond ETF, a few days ago.

"Longer term, I do worry about interest rate risk and the ramifications of this very long, protracted period of very low interest rates. Eventually they're going to start going up, and what happens? A bit of a bond bubble now, it appears"....(from CNBC transcript)

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